Jail sentences for bankers are favoured by the expert who has described the Bank Guarantee as the “most destructive own goal” in history and an “insane decision”.

Prof Bill Black has told the Oireachtas Banking Inquiry that “the only potential effective deterrent has to involve jail sentences for criminality”.

The expert on white collar crime said the best approach had to affect “the senior individuals who make the decisions”.

He told the committee that Ireland was still vulnerable to the practices which caused the financial crisis and that financial regulation had not been sufficiently transformed to protect us.

Furthermore he believed the inquiry itself was “fundamentally flawed” because it was constrained by constitutional limitations and fears of jeopardising on-going court cases.

The Associate Professor of Law and Economics at the University of Missouri-Kansas City, said that including subordinated debt made the Irish Bank Guarantee the worst response in history.

“To my knowledge nobody ever did that. Nobody responded as stupidly as the Irish Government. By giving an unlimited guarantee they turned a banking crisis into a fiscal crisis”.

The guarantee, he added, was the result of “truly, truly terrible anti-regulation” with regulators saying it was only a temporary liquidity problem and the government must act within hours.

He also acknowledged the contribution of “lying bankers and incapable regulators” as likely to lead to terrible decisions.

The professor listed the four key ingredients of a recipe for disaster - growing like crazy, terrible quality loans, extreme leverage and no meaningful loss reserves.

Institutions following this recipe would record profits, their senior leadership would become wealthy and then catastrophic losses would follow.

He described regulations since the crisis as clearly not fit for purpose while conceding there had been improvement in some areas.

In complete contrast to Prof Black, the second witness yesterday, Mario Nava said his confidence in the regulatory system had increased to 90pc.

He told Senator Susan O’Keeffe that it had increased threefold in the last three years.

Mr Nava, Director for Regulation and Supervision of Financial Institutions at the European Commission added: “we have arrived at a system which is very safe and which has reduced the likelihood of failure”.

Reforms since the banking crisis meant there was now a “significant strengthening of the regulatory and institutional framework underpinning the EU banking sector.

“We realised that when the crisis came we had many things to do and certainly we have done many things” with 41 pieces of new legislation in place in five years.

He described the Single Supervisory Mechanism and the Single Resolution Mechanism as “game changers” adding “we have arrived at a system which is very safe and which has reduced the likelihood of failure”.

The crisis had “taught us a lot about the failure of some European banks to manage their risks prudently and some national regulators and supervisors to exercise their powers with sufficient rigours.”